Real estate investing is the method that has made most people financially independent. It is a proven path to wealth that resonates with the aspirations of many Filipino investors.
In fact, if you look at the Philippine’s top companies, most of them are real estate companies.
Why you should invest in real estate property?
- First, real estate investing hels you fight inflation. Whatever the economic condition is, there is always a demand for homes and rents. So as a landlord, you can always increase charges as inflation rises. Unlike money in a savings account, money in real estate increases higher. But take note that it is not as highly liquid as a savings or stock market account. You cannot quickly withdraw your money by selling your real estate immediately. However, if the title is under your name, you can use it as collateral to borrow money.
- Second, you can leverage your existing property to further finance your real estate purchases. The rental money you receive from one can be placed to purchase another. This expands your assets.
- Next, it is stable. Over the years, real estate investments protect your assets from the volatility (ups and downs) of markets. Experts confirm that investing in real estate is still a good idea even during recession, especially residential. In fact, people may even be buying real property during market volatility because of lack of confidence in the stock markets. Also, people always need housing and as long your property is well-maintained, you won’t have trouble finding tenants. However, during the pandemic lockdowns, we found that commercial rentals are more prone to risks than residential ones.
- Next, property appreciation. Through time, the value of land generally goes up, not down. In contrast, a car’s value goes down after years of use. Studies show that in the last 100 years, residential real estate has kept up with inflation.
- Equity. When you buy real estate, usually you won’t pay 100%. You will only pay a portion of it around 20 to 25%. This is called equity. The rest, you will only pay through financing, leveraging or bank financing. You only pay for a fraction of its worth, and the rest you pay in the future.
Ways to invest in real estate
House hacking
House hacking means finding ways to generate income from your home. Traditionally, it means you living in a duplex or triplex as your primary residence, and you rent out the other unit so that their payment will be used to pay your mortgage. You virtually live in the property for free, plus it will be completely yours.
Property Flipping
Property flipping is when you buy a house that needs a lot of work, fix it up, and sell it for profit. You must be willing to put in a lot of work to turn it around. But to make it a passive income stream, you can turn it into a long-term residential rental property or AirBnB unit. But first you have to do some research on the location, is it viable for renters? Is there a good demand? Make a trip to the property. Compare prices to nearby properties. Ask for upcoming developments, safety situations. Consult with real estate experts, brokers, appraisers, tenants, and landlords to get a bigger picture.
More tips
If the thought of looking after the property or manage renters on a regular basis stresses you out, considering hiring a property manager. Also, don’t mix business with charity. When a renter is delinquent, it’s better to enforce your contract immediately, otherwise, you will end up suffering losses. Don’t over leverage. To leverage means to use borrowed money to purchase or develop a property with the hope of generating profits. If too much, you will be cleaned out if there is an economic downturn.
Real estate expert Doug Skipworth said, “Don’t wait to buy real estate. Buy real estate and wait.” If you are challenged to start, consider partnership. Look for a partner to finance your dream project. Also, if you are 33 years old or below, you can take advantage of government’s 30 year loan program. In the Philippines, you can avail it under the PAGIBIG Housing Loan program.
Another strategy is owner or in-house financing. You may approach the owner who can carry your mortgage. Talk to him and share yourself as having the capacity to pay. Talk about your income, your job, your life situation, and how you will be able to pay the monthly amortiztion. Personally, I find it easier to avail owner financing rather than government or bank financing. Usually, the owner will allow up to a maximum of 5 years to pay with an interest starting from 8%, or 12% or the maximum of 18%.